It's O vs. the Fed, and stocks are seen paying the price
Stocks performed well in the first half of the year, with the Kospi rising to the 3,300-level, but the outlook is dim for the rest of the year given the Omicron variant as well as signals of monetary tightening from the U.S. Federal Reserve.
Local brokerages are releasing reports forecasting the benchmark index to trade between 2,800 and 3,000 in December. The Kospi had been above the 3,000-level for most of the year, but the index lost momentum entering the fourth quarter, trading between 2,900 and 3,000.
Korea Investment & Securities projected in a report Wednesday that the Kospi will be stuck in a band between 2,800 and 3,060.
The brokerage said that there are a lot of uncertainties that could affect stocks, such as inflationary pressures, the spread of the Omicron variant and a more hawkish tone from the U.S. Federal Reserve.
Shinhan Investment projected in a report Monday that the Kospi will be moving between 2,750 and 3,000 in December.
It said the impact from Omicron will depend much on how effective the vaccines are against the new variant.
The brokerage said though that "it is not yet the time to be pessimistic about local stocks," comparing the current situation with the March last year when the coronavirus first started spreading in the country. Last year, people struggled more as vaccines weren't developed at all.
"Global stock markets were affected when the Delta variant spread, but they recovered as vaccines proved to be effective," the brokerage said.
Analyst Lee Eun-taek from KB Securities said that the impact from the Omicron variant will depend on the medical implications of the variant as characteristics of it are not yet clear.
"The worst-case scenario would be if Omicron is found to be easy to spread and also lethal," he said in a report Tuesday. "But even if the variant turns out to be less of a problem than expected, the Fed then is likely to speed up its tapering of assets, which would become another pressure on the economy."
Analyst Lee Kyung-min from Daishin Securities said that global market environment is likely to be against the Kospi at the end of the year.
The analyst said that with the number of Covid-19 cases continuing to rise under the Korean government's "With Corona" scheme and similar policies in place in other countries, the much-expected recovery in private consumption and employment and the improvement in supply bottlenecks have become hard to look forward to.
"It would be nice to see the Kospi ending the year in triumph, but that seems difficult to expect considering the reality," he said.
On Wednesday, the Kospi closed at 2,899.72, up 2.14 percent from the previous trading day after six trading days of losses.